China’s economy suffers deflation as CPI falls

China’s consumer prices have dropped for the first time in over two years, signalling a challenge to the nation’s post-pandemic economic revival due to a slowdown in spending.

The Chinese economy has entered a period of deflation, as evidenced by a 0.3 percent decrease in the Consumer Price Index (CPI) in July, following a period of stagnation the previous month. Data from the National Bureau of Statistics released on Wednesday highlights this trend.

This decline in prices is the latest indication of a deteriorating outlook for the world’s second-largest economy, particularly notable after a 14.5 percent drop in exports last month. This marks the third consecutive decline in exports and the most substantial decrease in three years.

China had previously experienced a brief episode of deflation in late 2020 and early 2021, primarily due to plummeting pork prices across the country.

Economists generally perceive deflation negatively, as reduced prices tend to lead to diminished consumer spending and decreased production, which can subsequently result in job cuts and salary reductions.

The Chinese economy has been decelerating due to waning demand both domestically and internationally, following a rapid rebound from the initial impact of the COVID-19 pandemic and stringent pandemic-related restrictions early in the year.

To support the economy, Beijing has introduced an array of policy measures, including increased backing for private enterprises. Further policies are anticipated to be unveiled in the upcoming weeks.